Engineer Your Retirement

This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the adviser for The Motley Fool’s Rule Your Retirement service. He also has a blog, Twittering thing, and other things that are supposed to be important but he often forgets about, such as hygiene. Robert contributes one new article to Get Rich Slowly every two weeks.

I get plenty of email from readers, usually filled with good questions, interesting stories, or links to YouTube videos of obscure Christmas songs (keep â€˜em coming!). Every once in a while, I get an email so good, I find myself thinking, â€œMaybe this person should be writing my articles!â€

I had that thought when I received an email with the following:

I created a spreadsheet to calculate required distributions from regular investments and IRA investments […] to maintain a fixed income level based on an assumed inflation rate and rate of return on investments. Of course, the spreadsheet also factors in taxes, Social Security incomes, and pension incomes — all of which start in different years.

After I read this person’s email, one word came to mind: engineer.

Turns out I was right. This person is indeed an engineer who spent more than 20 years working for one of the big automotive companies, then left to build software. Now he’s in his sixties, and he has enough to retire but still enjoys working; his wife, a teacher, just retired. They’re also millionaires, which is actually par for the course given their professions.

As author Thomas Stanley explains in Stop Acting Rich, there are a disproportionate number of engineers and educators among America’s millionaires. According to Stanley, the reason engineers tend to accumulate more wealth is that â€œsubstance, design, and endurance are more important factors in selecting a product, even a home, than showy style and status connotations.â€ Wealthy engineers even outshine their fellow millionaires; for example, they keep their cars longer and pay less for them than other millionaires.

I asked this fellow for the secrets to his success. He didn’t want us to publish his name — we’ll call him Mr. Engineer — but he kindly shared what he sees as the ingredients of his financial freedom.

Buy a Secure Future
Like most self-made millionaires, Mr. and Mrs. Engineer lived below their means. However, he tells us, â€œI’ve never liked that concept because it sounds too negative. I guess we thought of it more as â€˜spending all the money we had,’ except that some of our money was being spent on our future — and eventually our kids’ futures.â€ They didn’t live by a strict budget, but an early experience taught them the value of spending money in ways that provide true worth.

When Mr. Engineer was in his mid-twenties, he got laid off and was unemployed for almost a year. He began tracking every penny he spent, even if it was just a candy bar or soda. â€œIt really brought home to me how much money I was wasting on things that really didn’t matter,â€ he says. â€œIt was something like 25% of my total spending at that time. After that we never really needed a formal budget.â€

Debt-Free = Financially Free
If their money didn’t go to â€œthings that didn’t matter,â€ then where did the Engineers put it? Toward their car loans, credit cards, and mortgage. They had a goal of being debt-free by the time they retired; they were able to do it by age 55. â€œIt was an actual goal that we both had a desire to accomplish,â€ Mr. Engineer says, â€œnot just a â€˜wouldn’t it be nice if…’â€

That â€œgoalâ€ part extended to their assets as well as their liabilities. In their thirties, Mr. and Mrs. Engineer set a dollar amount they wanted to accumulate in savings. They’ve since met that goal. Mr. Engineer says, â€œDoing that [setting goals] and reviewing our progress periodically was important.â€

Become a Do-It-Yourselfer
As you might expect from an engineer, Mr. Engineer does most of his own auto and home repair. What you might not expect is that Mr. Engineer got a builder’s license so he could design and build his energy-efficient home. It costs just $600 a year to heat and cool their 2,500-sq.-ft. house (with a basement) in the upper Midwest. Mr. Engineer also has a pilot’s license. As he says, â€œI like learning and doing new stuff.â€

As I’ve written before, growing your human capital can include expanding your skills so you can do things you’d otherwise have to pay for, such as your financial planning. Mr. Engineer learned this the hard way.

â€œWe worked with a couple of brokers, but every recommendation they gave us resulted in a loss,â€ he says. â€œWe later tried working with a financial advisor after spending some time getting to know him. Although our overall success was much better with him, we didn’t think that the results were any better than what we would do on our own — without the extra fees.â€

Mr. Engineer’s best investment: shares of a utility stock he bought in 1977 for $3,300, which are now worth 30 times that amount — and pay $4,000 a year in dividends. Plus, as he demonstrated in our email exchange, Mr. Engineer understands the mechanics of turning a lifetime of work into a lifetime of retirement income.

Engineer Your Retirement!
You may not have the time or interest in learning how to build your own house, fly your own plane, or plan your own retirement. You certainly don’t want to try any of those before you know what you’re doing (as for getting financial advice, I’m a fan of fee-only advisors such as the folks found at the Garrett Planning Network or NAPFA). But the more you can do for yourself, the more money you can invest — and you’ll know you’re working with someone you can trust.

A combination of smart spending, long-term investing, and lifelong learning has turned Mr. and Mrs. Engineer into the quintessential â€œmillionaires next door.â€ They might not look the part, but looking rich isn’t the same as being rich. As Mr. Engineer told us, â€œNobody has everything they want, but we have more than we need.â€

Like What You've Read?

Sign up below to receive weekly email updatesfeaturing the best of the blog – and beyond. No spam. (Never.) Unsubscribe at any time.

Note: If you subscribed to Get Rich Slowly emails before November 2017, those subscriptions are no longer valid. I apologize, but the previous owners have no way of transferring former subscriber info to me.

Interesting, being an engineer myself, I want to second your thoughts. Very true, engineers are oriented to think in the line of durability and endurance. Being a software engineer, I also tend to make things error proof and hackers proof as well.

But I do think that this trend is not rooted in your profession, rather, it’s in the way you took on your life since childhood.

A doctor or a sales man, don’t they possess the qualities you mentioned? Off-course they do. I know many engineers who spend like a mad cow.

SO in summary, to me, it’s not in profession but in your mind set, how you grew up and what are your values.

I agree. It isn’t the fact that a person is an engineer that creates these values in people. I know plenty of engineers that lack them. But these values do help greatly in becoming a successful engineer.

I believe that you will find these values in many millionaires regardless of profession.

The unfortunate take away from this is that once those values are forged in early life, it is very difficult to learn them or even emulate them.

I’m an engineer by training as well. I agree with Mr. Engineer (‘substance, design, and endurance are more important factors in selecting a product’) and SB (‘But I do think that this trend is not rooted in your profession, rather, itâ€™s in the way you took on your life since childhood’). Both your outlook on life and your vocation or eductional training influence how you spend your money today! It’s worth doing some self analysis to see if you like what you’re doing financial wise, what you’d actually like to be doing financial wise and how to bridge the gap in a way that works for you.

I don’t necessarily agree with having a certain mentality being attracted to engineering. I’ve always been more of a liberal artsy and environmental type, but surprised everyone when I decided to major in Civil Engineering. I knew that I wanted to work in the wastewater field and found the major most suitable to doing that. Although true to engineering style, I have developed a certain fondness for spreadsheets. The engineering training definitely reconfigured my brain and thought patterns to follow those more suitable to engineering.

While I do not have his spreadsheet, or keep track of every penny, I and my family live by much of what is written by Mr Engineer. While our situation is different, family late in life (I’m 50 and the kids are 3 and 7), we put much of the planning illustrated here to practice (targets for investments, reducing debts, etc). While I will probably not be able to retire at age 55, I do need to apply the idea of “growing my human capital” to complete the process.

I like Amy’s comment that you don’t have to be an engineer to think and act like one. While I’m not an engineer, I like to think I’ve developed some of the same skills mentioned in the article: attention to detail, do-it-yourself mentality, and creating systems and tools (like the spreadsheet) to help you reach financial goals.

Too many people in this country use one source of information as the final word on a topic. If Americans did a better job using multiple, trustworthy sources of information we might not be facing such tough economic times. (Not as many home foreclosures, not as much confusion about news topics, better elected leaders, etc)

The ability to think critically is especially relevant to the generations following the baby boomers, because we are going to watch our parents face the consequences (good or bad) regarding how they planned for retirement. We won’t be able to rely on social security or financial planners. People like Mr. Engineer will get ahead and retire well, people that refuse to do their homework will get burned.

I thought this was a great post, and I encourage everyone to think more like an engineer.

There is definitely a fundamental problem with how and when we teach economics and finance in this country.

You are right that most of us would be better off if we thought more like an engineer but this problem starts so much earlier than a college education. I beleive it stems from a divergence from the common wisdom that the baby boomers were taught. Go to school, get a good job with a good company, stay with them for 30+ years and they and the US Government will take care of you via a pension and social security.

That model doesn’t work any more and unfortunately many of the baby boomers learned that too late in life. Some of their children are starting to figure that out but far too few. We need to fix the way we teach economics and finance at home and in schools.

They didn’t “learn that too late in life”; the rules were CHANGED on them late in life. Pension plans were dismantled, social security is being attacked, and so on and so forth.

While I agree with your principle points – that we need better economics/finance education in this country – you can’t blame the baby boomers for not saving enough for retirement. I entered the work force a few years ago, and was told from the start that I’d need to save and invest wisely (and significantly) in order to retire some day. I can’t say the same about my parents.

While I’ll probably never think like an engineer, I agree with @SB’s comment that it’s not so much about the profession as it is the mindset. This is a great success story! I love stories like this, it gives hope! Mr. & Mrs. Engineer are good examples of the possibilities.

While some people defy stereotypes (Kaytee?), engineers often have character traits that will lead to financial success.

However, one point the article didn’t make is that engineering is a fairly lucrative profession. I also do many of the things Robert talked about. But when you work for a nonprofit, living below your salary isn’t going to leave quite as much for investing in the future.

What a great and interesting article, I have managed engineers and used to often hear their comments about ‘how much the sales guys make?’. I used to say to them if you think you can sell then you can join the sales team, however remember the nature of an engineer is different to the sales mentality, the sales guy will accept the boom or bust theory earning loads one month and nothing for the next few months, the engineer mentality is knowing they will earn a steady income each month and know how much they will be getting at the end of each month.

This whole article made me grin. For anyone familiar with the â€œRich Dad, Poor Dadâ€ concept, my father-in-law was definitely my rich dad, and my own father and step-father are classic examples of poor dads. I learned so much from all of them. My FIL was an electrical engineer for NASA. My MIL is an elementary school librarian. When he passed earlier this year at age 63 after several years of a debilitating illness, he left a small fortune to his wife and 4 children. (My husband alone received ~$600k in various assets from the family trust.)

He was a classic engineer, always figuring the numbers, and he was the classic DIYer. He got a real estate brokerâ€™s license before buying and selling his own investment properties so he didnâ€™t have to pay anyone else the commission. He did all of the construction and maintenance for his homes, as well as property management. Because they lived in one of the best school districts in the state, (where the housing prices are ~$800k), they had to deal with a higher cost of living, but since the house, a grand Spanish-style built in 1910, was purchased in the â€˜70s for $170k, it has been one of his better investment since it is now worth $1.2M. Even with living in that house in an expensive area, they were and are very frugal, â€œkept their cars longer and paid less than othersâ€, and never paid anyone for services he couldnâ€™t do himself. He is our real â€œmillionaire next doorâ€, and mine and my husbandâ€™s financial hero. He has given us a very good start with the inheritance he left, and we hope to do with it what he would have-â€œget rich slowlyâ€ and secure our and our familyâ€™s financial freedom. :-)

While I in no way wish to take away from what our engineer friend accomplished, I wish some mention had been made of the luck involved in being the millionaire next door. Plenty of people do all the right things financially and get whipsawed by prolonged unemployment, serious illness or divorce. Luck, or the absence of devastating events beyond our control, play such a large and under acknowledged part in our financial well being. I would love to hear a reader story from someone who recovered from disaster or bad luck.

Dear chacha1, if only the converse were true. I lost three people dear to me last year, all of whom ate right, exercised, didn’t smoke and maintained their weights. If only their own good efforts had been enough to save their young lives. Experience has taught me that luck is a tricky thing, not to be underestimated, good or bad.

Likewise, I would suggest that an early in life bout of unemployment, however unfortunate, doesn’t have the same financial impact that it would later in life, when there is less time to recover. While our engineer friend may well have experienced some financial setbacks later in life, he didn’t mention them. I mean him no disrespect, but I feel deeply that we should all be grateful not just for what life has dealt us but for what it hasn’t. I grieve for my friends who are currently unemployed, many through no fault of their own. There but for the grace of God go I.

I think that all of us have good AND bad luck throughout our lives, and what really matters is how we handle both. Of course there will always be a small percentage of the population who have truly devastating events to overcome…but I think most of us get dealt a fair to middling hand at least some of the time.

chacha1, I don’t believe Catherine was suggesting that his fortunate circumstances were due to good luck. She was merely pointing out that with the exception of a small bout of unemployment (in the ’70’s, natch), Mr. & Mrs. Engineer have done exceptionally well. That isn’t the case for a lot of folks.

Reminding everyone that sometimes a twist of fate can mean the difference between a setback (after which one recovers relatively unscathed), versus a blow (after which the course of a life is forever changed) is not being disrespectful. It’s being realistic.

Nathalie, how do you know they’ve done well otherwise? He brought up the layoff as life changing but it doesn’t imply that other bad things didn’t happen, just that he was better prepared to deal with them.

I have a hard time with talks of luck in this context not because it doesn’t exist, but because so many people use it as a cop out and a crutch. So many people have *bad* luck that ends up doing good things for them, like in this case where a layoff taught him about frugality. I am as compassionate as the next person but I have seen how compassion often cripples. Within my own family I have seen plenty of devastation that starts with: “Poor you and your bad luck, let me help you out.” When, even if the person is completely blameless for the situation (which is rare), the person could have learned things if you let them work it out for him/herself.

And even then you need to take into account someone’s responsibility for innocent decisions. If someone takes a higher paying job with more volitility does he have more responsibility for his situation when he is laid off? I would argue that such things should be taken into account and the person has some responsibility for the outcome. life is more poker than craps. There is strategy involved in order to influence the odds of *good* or *bad* luck.

So no, I don’t buy *luck* as an excuse/reason, not because it isn’t a factor, but because as soon as you buy it everyone is going to be selling it.

Shara, at point did I express that luck, “bad” or otherwise, was the entire driving factor in someone’s financial standing, and therefore permissible as an excuse?

And, uh, the entire article is an outline of how well Mr. & Mrs. Engineer have done; a result of fortuitous timing (read: the utility stock) and careful, well executed decisions.

But you are still failing to acknowledge that fortuitous timing and smart decisions can be overridden by a debilitating family illness, a longer bout of unemployment, and/or any number of factors beyond personal control.

Yes, there are always lessons to be learned from periods of hardship. Yes, we should all be prepared for life’s ups and downs. Yes, we should all be planning for “what if?” scenarios (my earlier comment assumed those points were a given; we are, after all, reading a personal finance site). I cannot, however, fathom expressing to a mother with a well-balanced portfolio, six months of living expenses socked away, and a frugal lifestyle who is in the midst of the heart-wrenching decision to either keep her house or give her son the life-saving and financially devastating surgery his doctors have prescribed.

I guess I don’t understand why you guess they were so fortunate. This is a story is told in the third person…of what the poster thought was relevant to retirement…of what Mr. Engineer thought was relevant to the questions he was asked.

I don’t think it’s fair to discount Mr(s). Engineers decades of hard work, when you have know idea if they had any tragedies in their life.

My guess is accountants do pretty well too! Accountants and engineers are similar traits! My wife and I are savers and the only debt was a mortgage. My route to success and financial independence was income property and a business that provided financial freedom at 38 years old. As I near retirement (again), I find I am always planning (occupational hazard). It keeps me focused on what is important.

I would add that engineers aren’t just good at math, but they are trained to think deeper about math, not just algebra but three dimensional calculus. It doesn’t translate directly, but it does explain why he would “of course” take into account taxes and other expenses in his spreadsheet. It’s about more than just earning, more than just saving, more than just spending, more than just expenses. It’s a coherent system that takes all of them into account.

I’m not surprised by the fact that engineers are often millionaires. What DOES surprise me is that many professionals in the financial industry (particularly accountants) are very poor at handling their money as a whole. Mostly this applies to younger accountants who are just out of college, who want to buy a brand new Mercedes as soon as they sign on the dotted line, or classify a deep frier as a necessity when they don’t even cook. The ones that end up in a great financial position, and are undoubtedly millionaires, are the ones that take advantage of the office coffee maker as opposed to Starbucks, or are carrying around a leather briefcase from 20 years ago.

I find much of this rings true based on my experience as a silicon valley software engineer. I work mostly with people in their early to mid thirties with net worths (for those I know) in the several hundred thousand dollar range. This is because there’re responsible with their money, but also because they make good salaries. I probably make below average on my team (I haven’t been there as long as most) and still grossed over $150k last year. People around here so tend to buy nice cars – the parking lot at work has no shortage of BMWs (and one tesla and a few porsches), but at the same time people are paying cash for these cars because they can afford them. Two guys on my team of 8 recently bought new cars – an Audi a5 and an Infiniti G37. Both cars were over 40k and both were paid for in cash.

We also have expensive houses, because the area is expensive. One older guy on the team has a 1.4 million dollar home. It’s paid off. Another guy just put down 20% on an $800k place. I bought a “conservative” place for $550k because I want my wife to be able to stay home.

All in all, it’s just not the same sort of environment many people are used to, but in a way that’s good for those who are in it.

Sorry if there are typos or weird auto corrections in this comment, it was typed entirely with my left hand on my iphone – the baby is asleep on my right arm.

As an engineer, I have to raise my hand and say that I too love spreadsheets. Especially when it comes to making financial decisions. This past weekend I spent hours creating a spreadsheet to prove that selling my new car and buying an older used one would work out for the best for me. In the end, the spreadsheet pointed towards keeping my car, unless I wanted to spend significantly less for the used car.

My manager at work, also an engineer, created a large spreadsheet to figure out the cost of the house he eventually bought. A fellow older coworker emailed me a spreadsheet with compounding interest formulas showing how my money could grow if started investing in the company 401k plan now.

As an engineer I have to agreee that the mindset that makes one a successful engineer is one that comes in handy when setting up a solid financial future. But you really can’t discount the sheer numbers side. Engineering is on average one of the highest paid professions (yea, some actors get paid a lot – but there are A LOT out of work so – on average). So they have a pretty good pile of money to start with. I think Kaylee above is a great example of how this works with the smart money people too. Let’s say you have two people, both want to save the environment, one gets a liberal arts degree in anthopology, the other gets a civil engineering degree. Well, guess what – the one that followed the money is likely to achieve the goal of both making money AND saving the environment – while the one that focused solely on the feel good anthropology degree is that persons’ assistant.

Most people, not being engineers, probably won’t be able to plan out every financial detail the way this guy has. There’s a certain mindset that goes with that.

For the rest of us, there’s balance–earn, save, allocate, and most of all, keep expenses low.

Just staying out of debt is a seriously underrated component of retirement planning (or any kind of financial planning). Any money going into debt isn’t going into savings. By being debt free, you can 1) save money faster, and 2) keep your lifestyle cost in check.

I’m an older engineer who hates spreadsheets (especially Excel), so I don’t think that’s why so many of us reach financial independence. Pay is pretty good, which helps, but I think the main element is self control. It takes a certain amount of will power and stamina to survive the engineering curriculum at most colleges, and the impulsive types wash out sooner or later. Another factor is that in most work environments I’ve seen engineers have a pretty compressed payscale, so status is largely decoupled from finances. Instead it’s your ability to solve really difficult problems that no one else in the world can do as quickly or as well. I think this is also why most non-engineers find us to be boring (not that we care).

Too many engineers still do not spend enough time on engineering their financial future.

I think that most just dive into their job, work hard and care for their family and friends. But most engineers do not apply their analytic skills on how to manage their finances and grow theirs savings. They cut themselves short.

For a long time, I was one of them. 10 years ago that changed and I have never looked back.

Articles like this are good to tell all engineers out there that also without an MBA in Finance, they can take their financial future in their own hands.

Hi,
“Articles like this are good to tell all engineers out there that also without an MBA in Finance, they can take their financial future in their own hands”.

Just to let you know, i only have a technical certificate in electronics, but i believe in lifetime’s learning in anything to build up your human capital.
So i know, with my meager education, therefor salary, i know i must learn how to invest in the stock market and money management.
i started with asking for God’s Blessings and He has being unfair to me.
Of course i believe God only helps those who help themselves.

Great article. Love Mr Engineer.We don’t have to be engineers to accomplish this. We all can invest in the future (love the concept),evaluate what we spend on, learn new skills, find ways to reduce our spending and the earlier the better.

Little late here, but wanted to comment on the best thing I did for my finances: I moved back home. This saves me rent money, and allows me to save for my own home, and in addition, I get to help my parents out. This includes projects where I get to learn how to maintain and improve a home. Currently, my brother and I are working to replace some walls and cement the floor in our barn — which neither of us has done before. My parents are saving money on the work, and we’re learning how to do it ourselves!

Your email address will not be published. Required fields are marked *

Comment

Name *

Email *

Website

My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

If you like this website, you should check out the year-long Get Rich Slowly course. It contains everything I've learned about saving and investing during 12 years of writing about money. Buy it here.

General Disclaimer: Get Rich Slowly is an independent website managed by J.D. Roth, who is not a trained financial expert. His knowledge comes from the school of hard knocks. He does his best to provide accurate, useful info, but makes no guarantee that all readers will achieve the same level of success. If you have questions, consult a trained professional.

Advertising Disclosure: Some offers on this page may promote affiliates, which means GRS earns a commission if you purchase products or services through the links provided. All opinions expressed here are the author's and not of any other entity. The content at Get Rich Slowly has not been reviewed, approved, or endorsed by any entity mentioned at the site. For additional information, please review our full advertising disclosure.